20 November 2005

The Welfare State At Its Best

One of the perennial American political debates is whether the United States should copy European models, something liberals tend to argue, or shun then, which conservatives tend to argue. The success of the Nordic states in Europe argues that one should copy them.

There's no doubt that parts of Europe indeed have sunk into stagnancy. But the Nordic countries of Sweden, Denmark, Norway, Finland and Iceland are thriving, despite having even more generous government benefits and higher taxes than their European peers. . . . The Nordic states, with a combined population of 24 million, top almost every global measure of quality of life - and also, surprisingly, of economic competitiveness.

In last year's United Nations Human Development Index of "most livable countries," Norway ranked first and Sweden second, and the United States eighth. And the World Economic Forum this year ranked the top three most competitive economies as Finland, the United States and Sweden, in that order.

Even the 2005 Index of Economic Freedom, published by the conservative Heritage Foundation and the Wall Street Journal, ranked Denmark and Iceland ahead of, and Sweden and Finland just behind, the United States. . . . despite the widely held notion that the United States is the world's greatest opportunity society, studies show that parental wealth is a greater precursor to financial success in the United States than in Scandinavia. . . . A recent Harris poll asked people whether their lives had improved in the last five years. Only 26 percent of Germans thought so, compared with 60 percent of Swedes and 55 percent of Finns (and 56 percent of Americans).

This is not to say that the Nordic systems are problem-free. Sweden, for example, is grappling with massive abuse of its generous sick-leave policy. Sweden in recent years also has admitted large populations of poor, uneducated immigrants, many of whom are failing to assimilate and living on public aid.

Like the rest of Europe, most of the Nordic countries have fallen behind America over the last decade in economic output, largely because Americans work more hours.

But the Nordic states have grown faster, with lower unemployment and better-quality jobs, than the big continental European economies. . . .

While France, Italy and Germany are hamstrung by job-for-life cultures that erect myriad legal barriers to firing workers, the Nordic countries make it easier for companies to downsize. That in turn paves the way for new industries and new jobs.

The Nordic governments offer generous unemployment benefits and extensive government-funded retraining. But while Germans, French and Italians tend to linger on unemployment benefits for years, the Nordic states force people to take other jobs that come along.

Though their people take as much vacation as their European counterparts - two to three times as much as Americans do - the Nordic societies work more, because there is less early retirement and more women in their workforces.

Sweden and Finland also lead the world in research and development spending. The Swedes spent 4.3 percent of their gross domestic product on research last year, compared with about 2.6 percent for the United States and less than 2 percent for the European Union as a whole.

Another key factor: The Nordic states are widely perceived to have the world's least corrupt, most efficient governments and court systems. Foreign investors can count on fair and evenhanded treatment from regulators. . . . Nearly 80 percent of Swedes are in a union, for example, compared with 12.5 percent of Americans. . . . Women are the main beneficiaries of family leave and child-care benefits, experts say, and therefore it's no accident that Sweden has the highest percentage of working mothers. . . . Sweden even did something that has eluded President Bush: It converted its pay-as-you-go government retirement program over to a system of private accounts, to stave off a pension crisis. . . .Conservative economist Johan Norberg likes to point out that Sweden has slipped from the world's fourth-richest country in 1960 to the 26th richest. If Sweden were a U.S. state, it would the fourth poorest, measured in output per person.

I'm skeptical of purely monetary comparisons of countries which are different in a variety of ways. Life is a lot better in Sweden than it is in New Mexico, the fourth poorest U.S. state. Yes, per capita GDP may be similar, but that doesn't take into account things like leisure time, what like looks like for the less well off (as opposed to the "average" person), and the vageries of comparing economies using fickle exchange rates.

One can also consider cherry picking effects. Comparing five small countries to either Europe as a whole or the United States as a whole doesn't necessarily lead to a fair comparison. The five states with the highest per capita GDP in the United States (as of 2001) are Connecticut, Massachusetts, New Jersey, New York, and Maryland, and you could add the District of Columbia, which would be number two if it was a state. These 43 million people or so in six jurisdictions, are more comparable to the Nordic subset of the European Union. The policies of these Atlantic Coast states and their social statistics look a lot different than the United States as a whole, and so do their politics, which are well to the left of the United States as a whole.

Notably, all but one of the ten less affluents states in the United States, is a red state. They are from 41 to 50, South Carolina, Alabama, Idaho, Utah, Louisiana, Montana, New Mexico, Arkansas, West Virginia and Mississippi.

The per capita GDP of Connecticut is almost twice that of Mississippi.

Does prosperity lead to liberalism, or does liberalism lead to prosperity? Corollation is not causation, but that doesn't mean that corrolation isn't worth noticing.